Mastercard (NYSE:MA) is scheduled to report its earnings on Thursday, 28th of April before market open. The credit card company has been in the news lately for its potential tie-up with social network giant Twitter (NYSE:TWTR). Earlier in the month, MasterCard’s President of international markets had told CNBC in an interview that MasterCard would be interested in a payment service partnership with social media networks such as Twitter and Facebook (NSDQ:FB). MasterCard is interested in P2P (peer to peer) payments. To quote him:

"I think the way we would work with them is just the way we work with the other tech giants, we would figure out what we can do together, where our network could play into their space and connect up. Obvious spaces are if they want to offer payments to their clients and if you think about somebody like Facebook, it would probably be something like a P2P (peer-to-peer) service."

Mastercard, along with its rival Visa (NYSE:V), is already partnering Facebook in providing P2P services. A P2P service allows a seamless transfer of money from one bank account to another using a mobile phone. Facebook users can transfer money to their friends on messenger.

Mastercard and Visa already enjoy a duopoly in the debit card payments market. The company has been able to increase its market share from 24% in 2010 to 30% in 2015, at the expense of Visa. In the credit card payment segment, Mastercard has a market share of 23%. The significant market share has allowed Mastercard to post strong growth and profit number over the last few years.

Mastercard has enjoyed a strong growth in last five years with revenue growing at around 10% CAGR over the last five years while EPS grew at 18% in the same period. On the profitability front, the record is equally good. The company posted a return on equity of 60% and return on assets of 20%. Its operating margin(ttm) stood at 53% while net profit margin was around 40%.

The company has a dividend yield of 0.66% which, while not great, is likely to grow in the future. In the last five years, dividend growth rate has been at an impressive 63%. Also, Mastercard currently pays less than 20% of its total cash in dividends. The company had generated $1 billion in free cash flows in Q4, taking its cash and cash equivalents tally to $6.7 billion. Considering that Mastercard has a return on equity of 60%, the amount of reinvestment required to sustain low double digits growth (Mastercard’s forecast for revenue growth between 2016 and 2018) will be lower than current retained earnings. Hence, investors can expect an increase in Mastercard’s dividend.

Analysts expect Mastercard to report an EPS of $0.85 on a revenue of $2.38 billion. This represents a 4.5% EPS decline and growth of 6.8% in revenue compared to the year-ago quarter. The company has a good earnings track record with an earnings beat in the last 4 quarters. In the latest quarter, Mastercard delivered an earnings surprise of 14.5%. Mastercard stock has gained more than 16% since the last earnings report compared to 10% increase in S&P 500, reflecting a bullish investor sentiment.

In its Q4 2015 earnings call, management had expected a strong dollar to play spoil sport in Q1 2016. In Q4, strong dollar had chopped off 8% from EPS growth. The management expects currency headwinds to impact revenue growth by 2 percentage points and EPS by 3%. The declining oil prices are also likely to affect Mastercard's revenues. Declining oil prices have impacted economic activities and payment transfers in oil-sensitive economies. Lower gas prices had a 2% negative impact on US Gross Dollar Volume (GDV) in Q4.

Conclusion

Mastercard is scheduled to report its earnings on 24th April. The company is facing headwinds from a strong dollar and low oil prices. The company has a strong profit and revenue growth track record and is likely to continue the growth and profitability in coming quarters. The stock enjoys a buy rating from wall street.

American Express has lost their partnership deal with Costco. . Ecommerce payment processors such as Paypal, proving a threat. . Amex need a greater focus on savvy marketing and attention to consumer needs. .

Twitter shares have been rallying strongly on news that MasterCard is interested in partnering with it in P2P payment service. Twitter has also been moving on news that it has won a pivotal deal to stream NFL games. Twitter might not be bereft of growth opportunities as the market imagines which makes it a good contrarian play.

Visa and Mastercard are a duopoly with more similarities than differences. Both have great balance sheets and similar valuation multiples. I have outlined a few subtle differences between the 2 companies so interested investors can make a decision.

American Express has been losing share to Visa and MasterCard for years. The reason is simple. Visa and MasterCard cost merchants less, in discounts and other fees. American Express has yet to address these basic problems, and the trend remains in place.

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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